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China Life Profitability Under Pressure

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disappopint June 24, 2011 (Dawei Wu) Stock price of China life Insurance (NYSE: LFC) fluctuated significantly in the first half of 2011 with a negative bias due to its limited revenue growth potential. China Life Insurance (NYSE: LFC) is now $48.80 compared to $60.70 in the year beginning. One of the possible main reasons is that the Company only achieved RMB 166.5 billion revenue from January 1st to May 31st in 2011, which is much less than previous estimates.

LFC_stprice_2011624

Revenue Composition

There are three main business segments, including Individual Life Insurance Business, Group Life Insurance Business and Short-term Insurance Business. During the past three years, individual Life Insurance Business is the most profitable segment of the company, and its revenue reached up to 95% of total CFL revenues.

2008

2009

2010

Net Premium earned

265,177

275,077

318,088

Individual Life Insurance Business

252,113

95.07%

261,694

95.13%

302,753

95.18%

Group Life Insurance Business

339

0.13%

189

0.07%

468

0.15%

Short-term Insurance Business

12,725

4.80%

13,194

4.80%

14,867

4.67%

LFC_revbysec_2011624

China Life Insurance (NYSE:LFC) reported total revenues of RMB 300,385 million, RMB 339,290 million and RMB 385,838 million in 2008 - 2010. Also China Life Insurance (NYSE:LFC) reported the accumulated revenue from January 1st to May 31st 2011 was RMB 166.5 billion, estimated totally RMB 399,600 million in 2011. The company achieved an approximately 13.34% revenue growth in 2009 and 2010. However, the growth rate is expected to decline substantially in 2011(Est.), to a mere 3.57%.

Total Expenses

Looking at the expenses side, China Life Insurance (NYSE:LFC) reported total benefit, claims and expenses of RMB 346,601 million for 2010, which represents an 16.21% increase from 2009. It is estimated that total cost increase would be around 11% for 2011 after average cost growth of 6.38% and 16.21% in 2009 and 2010, respectively.

LFC_totexp_2011624

Thus, China Life Insurance (NYSE:LFC) reported a net profit of RMB 19,274 million, RMB 33,036 million and RMB 33,811 during 2008 and 2010. Although both total profit and net profit increased, its profit margin decreased by 1% in 2010. Due to the limited revenue growth and increased cost, China Life Insurance’s profit margin is going to be under pressure and is expected to decrease in 2011 (Est) to about 8.31%.

LFC_totrev_2011624



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